Victoria Falls, Botswana Falls, Victoria
Our group vision and purpose is to be the most trusted and inspiring connector of positive change, through a highly relevant, convenient and responsive network of people and channels that enables opportunities to be created, financed, transacted and secured wherever we operate.
INTEGRATED ANNUAL REPORT 2017 5 02 LEADERSHIP REPORT
Last year we made a fresh promise to all customers and stakeholders During the year, Capricorn Group acquired a 68.7% shareholding in of the group: To be a catalyst of sustainable opportunities. This year, CIHB, which in turn holds 100% of the share capital in Bank Gaborone. our promise was tested by a tough economic environment, however, Capricorn Group also bought 97.9% of the shares in CCHZ, which owns we believe that the group has succeeded in creating short- and 100% of the share capital of Cavmont Bank. long-term value from the opportunities that emerged.
Sustainable opportunities created Read more about the new group structure on page 22. in 2017
Group expansion and diversification As these entities had been part of CIH for several years, the During the year under review the group expanded its footprint integration into Capricorn Group was seamless and immediate, beyond Namibia through the acquisition of Capricorn Investment and took place with no system integration complexities or other Holdings (Botswana) and Cavmont Capital Holdings Zambia, from associated acquisition costs. CIH. Capricorn Group is now a truly regional financial services group with a diversified footprint that enables us to better mitigate risks GIPF transaction and collaborate in executing larger business deals through the pooling of resources such as funding, technology and human capital. A 2017 highlight was the acquisition of a 25% interest in Capricorn It will also promote regional presence and awareness by introducing Group by the Government Institutions Pension Fund (GIPF), which scale to the Capricorn brand. made the fund our second largest shareholder. The transaction was largely facilitated by CIH, which remains our largest shareholder despite selling a 15.5% shareholding in Capricorn Group to GIPF. GIPF bought a further 9.5% from Namibia Strategic Investments (Pty) Ltd, a consortium of Namibian investors.
6 CAPRICORN INVESTMENT GROUP LTD Okavango Delta, Botswana Okavango
“We want to continue delivering relevant solutions and convenient products with a responsive network of people and channels that enables opportunities to be created.” – Thinus Prinsloo at the launch of the Capricorn Group’s new name and brand, September 2016
INTEGRATED ANNUAL REPORT 2017 7 02 LEADERSHIP REPORT
Following the transaction, CIH’s shareholding in Capricorn Group Welwitschia Insurance Brokers and Sanlam Namibia decreased from 56.0% to 40.5%, whereas GIPF’s shareholding increased to 26%. CIH and GIPF will both fulfil the role of shareholders On 1 July 2016, the sale of Welwitschia Insurance Brokers (WIB) to of reference and, in this role, provide funding support to the group in Sanlam Namibia was finalised. We believe that WIB’s insurance general and more specifically to its banking operations. activities are a better future fit with Sanlam Namibia, in which the group holds a 29.5% share. WIB and Sanlam Namibia continue their GIPF showed its commitment to fulfilling the role of shareholder close working relationship with Bank Windhoek, to the benefit of of reference by offering immediate long-term senior debt funding of their mutual clients through the entities’ bancassurance model. This N$1.3 billion to the group. Similarly, CIH also committed to provide has resulted in a combined offering with improved service to clients 10-year debt funding amounting to N$900 million. This enabled the and more streamlined processes. group to make available committed contingent funding facilities to its three operating banks. This has significantly mitigated the Capricorn Private Wealth Suite launched liquidity risk within the group – a material matter that is of major importance for Capricorn Group. Bank Windhoek and Capricorn Asset Management launched the pilot phase of the Capricorn Private Wealth Suite in June 2017. It is GIPF funded the transaction with the proceeds from the disposal an exclusive offering delivered by a dedicated team of private of foreign investments, injecting much needed investment and bankers, wealth managers and service specialists. This team works liquidity into the Namibian economy. The transaction also results together to service customers’ needs comprehensively and in more inclusive ownership of the financial services industry. seamlessly, at the location convenient to the customer. Branded Capricorn Group has a 100% ownership score according to the elements that form part of the offering include, among others, a Namibian Financial Sector Charter (NFSC) scorecard after the share debit and credit card, electronic banking platform, mobile banking acquisition by GIPF. Its current Nam-mic relationship is also application, dedicated service desk and suite access. included in this score. The offering focuses on retaining and attracting affluent customers.
8 CAPRICORN INVESTMENT GROUP LTD The Capricorn Way defined 2017 performance overview
Following the expansion and the rebranding of the Capricorn Group, The Namibian economy experienced one of its biggest challenges there was a need to align the different entities and create a common since Independence with gross domestic product (GDP) declining understanding of what the group stands for. The Capricorn Way was significantly from a 3.3% growth during the prior financial year of developed as a shared culture and understanding of how we do things. the group, to a contraction of 1.8% during the first three quarters It was written in such a way as to remain relevant as we grow and of the group’s current financial year, based on the quarterly figures change as a group and as we move from one leadership generation published. to the next. The Namibian banking sector has been significantly impacted by We developed The Capricorn Way to be universal and inclusive so this downturn, which resulted in a sharp reduction in private sector that it is relevant to the different generations and cultures of the credit extension (PSCE) and severe market liquidity constraints. countries that we operate in. As a consequence, cost of funding increased substantially as the market competed for limited liquid funds and growth opportunities We operate in an extremely competitive environment in a number were stifled by the stagnant economy. of countries, but there is one distinctive advantage we have, and that is our culture. Notwithstanding the challenging operating environment, the group delivered a solid performance with operating profit before tax for We believe that The Capricorn Way will inspire collective thinking and the year ended 30 June 2017 increasing by 2.0% compared to an aligned culture which, together, enables us to make connections the prior year. On a normalised basis, growth in operating profit and create outcomes that will contribute to the economies of the before tax is 4.0% compared to the year ending 30 June 2016. countries in which we operate. Any reference to “normalised” means that, for the sake of meaningful comparison, the effect of the following significant We also updated the Capricorn Group code of ethics and conduct policy once-off transactions and acquisitions have been excluded from to align with The Capricorn Way. Read more about The Capricorn Way actual account balances, to arrive at normalised balances: in the sustainability and ethics committee report on page 88. • once-off forex trading income on the trading of Angolan kwanza in the prior year • prior year income, expenditure and profit of Welwitschia Insurance Brokers (WIB), which was sold on 1 July 2016 • income, expenditure and profit of the Botswana and Zambia subsidiaries since acquisition on 1 January 2017 • assets and liabilities of the Botswana and Zambia subsidiaries as at 30 June 2017
INTEGRATED ANNUAL REPORT 2017 9 02 LEADERSHIP REPORT
The table below sets out the salient features of the group’s financial performance over the past five years.
2013 2014 2015 2016 2017 Five-year CAGR* Statement of comprehensive income (N$’000) Total income 1,437,645 1,736,630 2,079,559 2,411,946 2,647,682 16.3% Operating profit 648,083 792,874 979,023 1,171,014 1,194,679 18.3% Profit for the year after tax 493,271 624,915 753,002 905,048 917,621 17.9% Total comprehensive income for the year 515,630 639,159 781,488 938,513 931,055 17.4% Earnings per share (cents) 108 125 150 181 180 15.2% Dividend per share (cents) 33 44 53 66 68 22.2%
Statement of financial position (N$’000) Total assets 20,938,608 24,318,268 28,608,842 32,333,653 42,920,914 17.8% Total loans and advances to customers 17,651,962 20,245,395 23,621,871 26,598,023 33,433,922 16.6% Total deposits 16,915,652 18,782,411 21,993,998 23,724,128 31,571,561 15.0% Net asset value per share (cents) 532 617 728 856 1,003 19.2%
Performance indicators (%) Return on average equity 21.9 21.9 22.4 22.9 19.5 Return on average assets 2.5 2.8 2.8 3.0 2.4 Impairment charges as a % of average gross loans and advances 0.16 0.15 0.26 0.24 0.19 Non-interest income as % of operating income 37.1 39.8 40.2 40.6 38.5 Cost to income ratio 54.1 53.6 51.6 50.2 53.9 Closing share price (cents) at 30 June 1,015 1,115 1,556 1,724 1,809 Price to book ratio at closing price per share 1.9 1.8 2.1 2.0 1.8 Price to earnings ratio at closing price per share 9.4 8.9 10.3 9.5 10.0
Capital adequacy (%) Total risk-based capital ratio 16.6 15.8 15.8 15.8 16.8
* Compound annual growth rate
Net interest income increased by 13.1% to N$1,649.5 million Impairment charges for bad and doubtful debts decreased by 4.6% to (2016: N$1,458.1 million) largely as a result of the acquisition of N$58.0 million (2016: N$60.8 million). Impairment charges for Bank CIHB and CCHZ, which contributed 9.8% to the year-on-year growth. Windhoek decreased by 23.4% to N$46.6 million (2016: N$60.8 million) The subdued normalised growth in net interest of 3.3% is mainly and as a percentage of gross advances decreased from 0.24% to 0.17%. due to a significant increase in the cost of funding as a result of the liquidity shortage experienced in the Namibian market during the Capricorn Group’s loan book remains healthy considering the current year under review combined with a slowdown in the growth of economic environment, and is testimony to the group’s prudent interest-bearing assets. management and the benefits of a decentralised decision-making model. Both Bank Gaborone and Cavmont Bank’s impairment charges are also within accepted norms.
10 CAPRICORN INVESTMENT GROUP LTD Non-interest income increased by 4.7% to N$998.2 million (2016: N$953.8 million). On a normalised basis, non-interest income increased by 7.4% compared to the prior year. Transaction fee income increased by 24.6% following robust growth from cards and electronic channels. Initiatives such as the launch of the Capricorn Private Wealth Suite are expected to provide further momentum to this income stream. As a direct result of the contraction in the Namibian economy, the good growth in transaction fee income was partially offset by a contraction in trading revenue.
Non-interest income per category
2017